Online planner ratings will not rebuild trust in advice
Online rating systems for financial planners tend to have low levels of penetration and produce inconsistent results that are not representative samples of a planner's client base and will do little to rebuild trust in the financial advice sector according to Beddoes Institute director Dr Adam Tucker.
While the rationale behind rating systems are sound — to protect consumers, Tucker said research has found that online ratings systems fail in their ability to gather sufficient data on a planner's ability and do not improve levels of trust or lift standards.
"These type of vehicles usually get around a six per cent penetration level with the remainder of professionals left unrated and those that are rated are done so in a sporadic and inconsistent manner, with the overall result being an unrepresentative sample set of clients rating an adviser," Tucker said.
According to Tucker similar types of systems have been used in the United States for about 10 years to rate doctors and there was no evidence they increase consumer trust or lift the standards of industry professionals.
"Researchers looking at the data created have found that it is not solid enough to base any judgements upon and was too patchy to draw any conclusions. The idea of protecting consumers is a good one but if the data set is poor what protection does that really create?" Tucker said.
Tucker said most research into advisers focused on client satisfaction which was backwards looking and required consumers to have received advice to make a judgement.
He stated that trust in an adviser was a forward looking proposition covering what potential clients were seeking from an adviser but this had not been communicated well to date.
As a result he said the Beddoes Institute was conducting research into what made an adviser and licensee a trusted entity and how that could be communicated to people who currently do not receive advice.
"We have begun to mathematically validate what consumers view as trustworthy in advice and how licensees and advisers are communicating their trustworthiness. The community is unsure what to look for and there is a communications gap with advisers not having the language required to tell them," Tucker said.
AUTHOR
Jason Spits
Recommended for you
The FAAA has secured CSLR-related documents under the FOI process, after an extended four-month wait, which show little analysis was done on how the scheme’s cost would affect financial advisers.
Nearly seven in 10 HNW-focused advisers view alternatives as the asset class that will be fundamental to meeting client demands in the future, according to Praemium.
The Perth-based advice practice has welcomed a private wealth adviser and senior paraplanner to its ranks amid its strategic shift towards wealth transfer strategies.
The number of members expelled from the Australian Financial Complaints Authority almost doubled between 2023 and 2024, according to internal data.
